HDFC Bank Ltd (HDB) 0 Q0 法說會逐字稿

Thank you for standing by and welcome to the HDFC Bank's Quarter Four and Full Year Results Conference Call presented by Mr. Paresh Sukthankar, Executive Director. At this time, all participants are in a listen-only mode. There will be presentation followed by a question-and-answer session.

I would like to hand the conference over to Mr. Paresh Sukthankar now. Over to you, sir.

Thank you. Good evening, everyone, and thanks for joining us on this call. I'll very briefly walk you through some of the key financial parameters and then we'll plunge into the Q&A.

Before I go into the numbers, I'm sure some of you might have seen the press release and the numbers. I just want to give you a background about a couple of the reclassifications, which have been done. For starters, I think it's important for you to realize that none of these have any impact on the P&L. It doesn't impact the bottom line at all. The changes are one that so far the cost of acquisition that we have on retail assets, which is the commissions that we pay for to agents or dealers and so on, were taken as a yield adjustment, which means that it was reduced from interest income. Now, these are shown as an operating expense. So to that extent, the interest income is higher and the operating expense is higher, that's one.

Secondly, for recoveries that we make from written-off accounts, we will see these were written back into the provision line. So it was a reduction in the provision. Now, it is being shown as other income. Both these changes were based on instruction that we received from RBI. What we have been doing for the last several years was simply because there is no written -- there is no Indian GAAP guideline on these issues so we have been doing what we have been doing in US GAAP, we have also been following the same practice for Indian GAAP, nothing wrong in what we were doing at all. However, I guess in the interest of consistency because most other banks in India account for it in this particular manner, we received instructions and we have therefore reclassified these amounts. As a result, when you look at ratios like the net interest margin or the cost-to-income ratio, you will find that there is a slight change.

What we have done in the press release is, of course, to also mention the numbers as they would have appeared before the reclassification so as per the erstwhile classification of these two numbers. So with that background, let me go into the key parameters themselves.

The total income for the Bank, which is interest earned and all other revenues were for the quarter were at INR11,127 crores, which increased 21.1% over the corresponding quarter of ended March 2012. Net revenues were up 17.5% over the corresponding quarter, 70% -- a little over 70% -- 70.4% of net revenues are accounted for by net interest income. The NII growth for the quarter was 20.6% year-on-year. This would have been a little over 21% if you were to look at it pre-reclassification, but based on the current numbers, which is 20.6%.

The balance sheet growth overall was around 18% -- 18.5%. The NII growth was driven by loan growth of 22.7% and a net interest margin for the quarter of 4.5%. This 4.5% is obviously based on the reclassification, which I just mentioned earlier, and therefore the interest income is higher to the extent of the retail cost of acquisition, which otherwise were being set off against the interest earned line. This margin of 4.5% compares with 4.4% in the corresponding quarter of last year and 4.3% for the December quarter. So that's the change. Just for those who are still used to the earlier numbers, if the reclassification had not taken place, the margin for this quarter would have been 4.3% as compared to 4.2% in the corresponding quarter of the previous year and as compared to 4.1% in the December quarter.

Moving on from the NIIM and the net interest income line to other income, other income constituted 29.6% of net revenues. The growth in other income was a little slower at 10.7% increase to INR1,803 crores. This time around, other income has four components. There is fees and commissions, there is FX, there is bond gains and the recoveries, which is the new item I mentioned earlier. Operating expense growth was 17.7% over the corresponding quarter. Provisions were at INR300.5 crores as against INR411.6 crores. The INR300 crores included a floating provision of INR50 crores. If you remember in the December quarter that number was INR30 crores so there is sequentially a pickup -- a small pickup in the floating provision. That's that INR50 crores in that INR300.5 crores, the rest is all specific provisions. The net profit growth was 30.1% and number was INR1,889.8 crores.

In terms of some of the balance sheet items, the overall balance sheet touched INR400,332 crores. That was a growth of 18.5% year-on-year. The loans and advances growth was 22.7%. Total deposit growth was 20.1% and the CASA proportion as of March 31, 2013 was 47.4%. That 47.4% compared to 48.4% a year back and compared with 45.4%, I think, in the December quarter.

Other than the balance sheet growth, just a couple of other operational parameters. The branch network touched 3,062 branches so there has been a substantial increase in the number of branches. A little over 500 branches have been added during the year. 193 of them were very small branches, we might call them mini or micro branches, which are essentially in slightly deeper geographies with typically two, maybe in some cases three employees, so these are smaller branches not the typical branch. So that's about 193 out of the 500-odd branches that we added during the year. As a result of the continued branch expansion, I mean we've had now roughly 500 branches that we've added last -- the year ended March 2012 and the year that we have just finished. Consequent to that expansion, we now have branches in 1,845 towns, cities, locations that you may talk about and 53% of these branches are in semi-urban and rural areas.

On the asset quality front, gross NPAs were marginally lower in absolute terms, but in percentage terms, it was 0.97% so it's essentially flat vis-a-vis both last year and sequentially. If you go to the second decimal, I think it's 0.97% as against 1% and 1.02% in the corresponding quarter and the sequential quarter. Our total restructured loans are also marginally lower at 0.2% as against 0.3% a year back. The capital adequacy is at 16.8%, Tier 1 is at 11.1%, and the dividend declaration this year was at INR5.50 per share.

So those are some of the key parameters. We'd be now happy to throw this open for questions.

(Operator Instructions) Abhishek Kothari.

Hello, sir. Congrats on your good set of numbers. I just had one question regarding loan growth. Typically, this quarter also the loan growth hasn't been too fascinating over the previous quarter so any guidance on the same going ahead and if I observe, your H1 has been better than H2 in terms of loan growth?

Two points. One is we don't have a guidance that we give on almost any financial parameter. Let me give you how the sort of track record has been and why we try and grow at a particular rate. We, as you know, typically try and grow at about 4% to 5% or 3% to 6% faster than the banking system and a lot of that growth we try and achieve as much as possible in the first few quarters of the year and we then sort of typically try and hold this roughly flat.

So this pattern of having grown a little faster in terms of loan growth in the first couple of quarters and being more or less slightly flattish in terms of absolute loan outstandings in the last quarter or so is something that has been happening for the last few years because the focus in the last quarter in particular, though it's a focus that we try and maintain through the year, but even more or so in the last year, is to try and meet the requirements on private sector so the focus is much more on the PSL loans. And therefore, the overall loan growth -- the rest of the loan growth tends to be flattish. But on a full-year basis, we would typically outpace the banking system.

I think this year for instance, the industry grew at about 17.4% or 17.5% and we have grown at 22.7% so that 5% faster than that is what we've achieved. The loan growth has come from both wholesale and retail although the retail loan growth has clearly been faster than the wholesale loan growth. So year-on-year wholesale loan growth was about 17% while the retail loan growth was a little higher than 26% odd. If I look at what happens to loan growth next year, I think that will again boil down to what -- at what pace we expect the industry to growth at.

We do believe that the economy could grow maybe 0.5% or 0.75% faster than this year in which case, it's likely that next year's loan growth could be at somewhere closer to 17%, 18% because although this year ended at an industry level at 17%, for most of the year, loan growth was languishing at 15%, 16% at an industry level. So we believe industry loan growth in terms of reality, not just a year-end number, could be at about 17% or thereabouts if the economy actually does grow about 0.75% faster than what it did this year, in which case we would grow again 3% to 6% faster than that. So, I don't see a huge change in the loan growth unless there is a meaningful pickup in the economy itself.

Okay. And sir, previous quarter when we spoke, there was a concern in the CV portfolio, right? Any screen in that portfolio currently?

The CV portfolio still remains under stress, but has actually seen a stabilization and a very, very marginal improvement on a sequential basis. So has that sort of suddenly bounced back to where it used to be, the answer is no, but it has in fact improved on a sequential basis to some extent and there is a commercial vehicle component of that. The construction equipment component of the PTG portfolio still shows signs of stress and has in fact shown more or less similar NPL level or delinquency level. It has not shown any improvement and I would expect that that stress would probably continue for a couple of quarters.

So same level of delinquency that you saw in Q3 or is it much higher?

No, it's not higher, it's sort of flattish; say more or less the same level. So overall, I would say that between these two put together, I think there is -- it's sort of flattish to being marginally better. It hasn't shown any trend of deterioration, but -- and as far as most other -- and on a combined basis, therefore it's very marginally better because CV is the larger component of that overall portfolio. And in the same way if I was to just extend that, most of the other retail products have also continued to be fairly stable.

Okay. Just one last question. What's your risk-weighted asset at the end of the quarter?

The risk-weighted assets are INR305,000 crores.

That's it from my side. Thank you.

Thank you very much. [S. Natraj]. You may go ahead, please.

With respect to the public investigation that happened at the Cobrapost hearing. Post that, I know it's under investigation. Just wanted to get a feel, have you -- are you relooking at your growth assumptions in terms of branch expansions and so on to put certain things in order in-house or I know -- keeping aside the investigation that is already going on?

Sure. So I think let me just make one or two points on this one. I think as you rightly mentioned, the investigations are going on, but a substantial portion of the investigations have also made reasonable progress in the last few weeks since this thing broke out. And these investigations have covered what has been done internally through our internal audit teams, it covers what has been done through an independent forensic fact-finding review which was done through an accounting firm. And of course, the fact that the regulators have also been doing their own scrutiny and so on.

And I think what is clear is that all of these agencies or reviews have shown up that there have not been any transactions that they have come across, which actually are in the nature of the transactions which have been alleged in the string operation. So there are some six or seven types of transactions that have been alleged in the sting in various of these snippets and there have actually been no transaction that have actually been found to have taken place and this is of that type, okay. Obviously, the sting is not -- those are not transaction which could have taken place because that was supposed to be a sting, but transactions of that nature have not taken place -- have not been found in any of these branches and this is which goes back to not just the period of the so-called sting but goes back to almost 12 months back.

Separately, in terms of whatever further process improvements and so on which may be there, that is also a track that is going on and there will be some improvements that would -- there would be room for some of those which would come in place. But clearly, there is no systemic or rampant issue which shows a vulnerability or a weakness which seemed to be the allegation or the suggestion in the string operation.

As far as the impact of that on growth rate or so on, I think as far as rolling out of new branches, especially our penetration of the rural markets, that is driven by our rural strategy and a financial inclusion and regulatory requirements in terms of being in rural and unbanked areas. So it's both business and regulatory in terms of what the requirements are. I don't think there is a direct connection between what our branch expansion strategy might be and this particular thing because if there is any improvement to be done, whether in our system, in the IT system or in a -- from a process perspective, I think that can certainly be rolled out or executed without any impact on whether we're adding X number of branches.

Having said that, the fact is that our normal branch expansion used to be about 200, 300 branches a year; in the last two years, we've kept it up. March 2012, we added again 500-plus branches. This year, while we've added 500, about 200 of them are much smaller. So if you look at the regular sort of branches which themselves are -- a lot of these are in semi-urban areas as well, but not the mini-branches, those would be about 300 and roughly 200, about 193, are really smaller branches. So that has really been driven by that strategy. There is nothing more that I can add on this front at this point of time till the regulators come up with whatever are their final observations or final requirements from any of the banks, including us.

And one last thing on that, will it have an impact on our fee income in terms of how you sell certain products in your branches, across branches from a perspective of how it is portrayed?

Let me put it this way that the products that they're sort of focused on are that they have said that could be the subject matter of this -- if you are essentially in the area of insurance and gold coins and so on. And I think the fact is that the actual volumes that have been achieved even during this quarter have held up pretty similarly and obviously as you can imagine when all of this was top of mind and the heat was on, there could have been nothing that could have even remotely and as I said, there was no transaction that we found in any case, but which would not have in the most strict manner adhered to the requirements that had been there.

So, I would say that the impact if any in terms of fee income would be more to do with intrinsic business aspects. For instance, the change in the mix of policy that have been told and the -- in fact, that has on the commissions that one earns on that. The fee -- the impact on fee could be also driven by other regulatory changes like earlier in the year, we had a reduction in the debit card interchange and the ATM transaction fees, both of which have actually had an impact on fees in this quarter as well.

So there will be impact on fees relating to general regulatory changes on pricing or other business-related issues. But direct impact of this, we believe should not be there, because our internal processes required these products to be sold in a manner that was not -- and that is -- was not and is not inconsistent with what is required to be done.

Okay. Thank you. Appreciate it.

You are welcome.

Vishal Goyal, UBS Securities.

Hi, Paresh.

Hi, Vishal.

Question actually is on the mix of retail book going forward. I know you don't give guidance, but I'm -- generally, just to get a sense of how do you look for next year, especially given I think auto is slowing down, I think, very clearly, especially the CV side.

Sure.

And competition in retail as you can experience is only intensifying. So how do you see the retail book actually kind of mix going forward?

Well, certainly, this year, you can imagine has also been a year in which the retail competition had intensified substantially, right, because I think certainly, virtually, from the beginning of this year, most banks, both public and private, and in fact a lot of the foreign banks and perhaps the NBFC as well, have all been refocusing on retail, in particular, of course, auto, housing, and so on.

And even against this environment, we've been able to grow our retail book by roughly 26%, 27%. I do see this competitive intensity to continue into next year. I think the only way it will vain is if there is a substantial bounce back on -- in corporate loan demand driven by a return of the investment cycle and therefore CapEx and project-related loans, because some of the players might well be focusing more on retail because of the somewhat more sluggish corporate growth.

So the answer to your question is, we believe we are pretty well entrenched in the retail market and we are reasonably well positioned in the retail market. We continue to roll out these products into a larger and larger geography. So while I spoke about the branch network, we're also ensuring that these products are available in more and more branches across that expanding branch network. We have also been focusing a lot in the last couple of years, but certainly in this year even more, on increasing our penetration of existing customers. And to that extent, on the retail asset side, if we can sell more these products to our own customers, the competitive intensity is slightly lesser than in the open market acquisition.

So I think we will remain or we will try to maintain a healthy growth rate on the retail side, but yes, if you're saying that some of the underlying products may see more sluggish demand, there is no doubt that ultimately, the growth in auto loans is linked to the growth in car sales and the growth in CV loans will be linked to what happens to CV -- underlying commercial vehicle or truck sales.

On an overall basis, however, I think next year, I mean, this year rather, that is March 2014, I would expect that corporate loan growth vis-a-vis what we did last year would see a slight up-tick. And that is borne by the -- and that it sort of flows from the expectation that if the economy is to look up, you would see some more CapEx-related expenditure and therefore some borrowings and also from our point of view there, we do believe that we can participate in some of the refinancing opportunity that are there in respect of projects, which have got completed and there, we are positioned to take a part in -- take up share in some of those opportunities.

And of course, our core working capital piece still remains -- working capital, trade finance, medium-term lending piece still remains where it is. So, we do see both wholesale and retail growing. I do see wholesale growing a little faster than this year and retail, yes, there will be intense competition but -- and some products may grow a little slower and some may grow a little faster. But on an overall basis, I do expect that retail might still outpace the corporate loan growth.

Thanks. And the other question actually is on CASA, how have been our savings basically deposit customer acquisition, basically, for the quarter or maybe for the year if you can just give some sense?

Well, we've actually seen continued reasonably healthy momentum in terms of the number of customers that we've been adding on the CASA side. So we add about 600,000, 700,000 accounts a quarter -- sorry, a month, and that momentum has certainly been sort of maintained. So we've been adding roughly --

(inaudible).

Yes. Net of attrition and net of sum closure that we've been achieving, we've been able to sort of achieve that that has not changed in the last few quarters or the last few months.

But this number is -- is it growing at 15% or I'm -- basically, I'm just trying to get the sense on the growth of for 600,000 or 700,000, was it 500,000 last year or it was the same?

The number has not -- I mean, has actually marginally gone up to what it used to be. Though the increase in the savings accounts deposits are a function of adding new customers and increasing obviously balances with existing customers. So when we look at, let's say, if you were to add roughly 1 million accounts, and if we look at then the balances that we've added, obviously, there has been a growth which has been a little more than the number of accounts, because we've been increasing balances as well.

So as of March, for instance, we have roughly 18 million savings accounts, and it's not that the same number gets added every quarter because there is an ongoing effort on adding customers, adding accounts, we also tend to close accounts which don't meet certain requirements or customers may get weeded out. So, I think it's a combination of those, but net-net, especially when you look at the new branches as well as existing branches, the focus tends to be naturally on acquiring new customers when it comes to new branches and a little more of increasing penetration and the good part is that this has been coming across the various product variance that we have. So when we look at the additional savings accounts, it would be across the salary components, the semi-urban market, the rural markets and the other branches as well.

Thanks, Paresh. All the best.

Akshay Jhaveri, Emkay Global.

Hello.

Yes, hi.

Hi, Paresh, this is Kashyap Jhaveri here.

Hi.

Hi. A question on your fees, sequentially, for the first time in last many years, we've seen a sequential decline in fees, I'm talking about excluding other component in the other income. So, what has driven that decline on QonQ basis?

Yes. So you're right that the --

But this does not include that subvention thing, right?

No, this does not -- the subvention thing does not come into the -- except for a very small component where we get the subventions from the manufacturers, that fees is there, but that has got a very small -- because it's there in both, right. So it doesn't affect the growth rate.

Right.

So if I look at what has been the components of fees which have got impacted during this quarter, right, one, I see that the -- vis-a-vis last year, the earnings on the debit card interchange and the ATM transaction fees --

No, I'm talking QonQ actually.

Sorry.

September versus March -- sorry, March versus December.

Yes. So, March versus December, I think the elements are, in fact again, the commission rates have fallen on the insurance piece.

Okay.

That's a change essentially in mix between the regular policies and the traditional and the ULIP policies. The one-offs -- there were some one-offs in Q3 where there are certain types of fees that we typically earn once a year, which comes in one of these quarters. Thus this year they came relating to our cards franchise and so on, which this year came in the third quarter. So to that extent, the third was higher.

Okay.

A bit of a trouble as sequential growth rates in both ways. And also on the retail assets processing, some of the transaction fees which were slightly lower disbursement that we did during this quarter, where the overall growth rate in retail was as strong, but the growth was a little faster in the non-EMI products vis-a-vis the EMI. To that extent, sequentially there would have been a slightly different amount of earning that we would have had from these commissions including the subvention because the subventions are again more for the EMI products. So, these two, three. So there has been a slight sluggishness during this quarter on the fee income although I guess on a full-year basis, we've still talked about a 19% or thereabouts for fees and commissions.

And let's say next year, given this -- adjusting for these one-offs on a full-year basis, what's the expectation on fees part?

So again, I don't have a guidance. If you look at the average of the last few years --

Right.

Fees and commissions, we have grown somewhere between 15% and 20% in most of the last three or four years.

Right.

Some quarterly variations.

Right.

And of course, every year there has been some regulatory impact, there has been -- sometimes it was on mutual funds commission, sometimes it was on (inaudible) commissions, this year on the merchant acquiring commissions and some continued impact on some other. So there will -- depending on what happens in terms of any further impact on any pricing-related change as a result of regulation and the mix growth in terms of some of these other components of the products, I would say that the historical trend which has been there in the last few years does not seem unrealistic, but I honestly don't have a number in terms of guidance on any financial parameter including the fees and commissions.

That's fair enough. Second question, you highlighted about growth in the overall loan portfolio at 4% to 6% higher than the industry average number. But if you look at the behavior of the loan growth in the last about six, seven quarters, it usually peaks at the end of the quarter and suddenly next month of the -- or the first month of the next quarter, you see sudden repayments happening. So to that extent, that 17% growth of the industry is actually sort of a bit misleading number. So one, how do you see those -- that behavior which has cropped up in the last about six, seven quarters of fairly large disbursements in the last fortnight or last month of the quarter and sudden repayments in the next quarter. And two, in that context, wouldn't your assessment of about 4% to 6% on industry average could probably be misleading?

Well, I was talking about more the point number, that's where we are concerned. As you can see, we don't have a spike anything and that the difference between our year-on-year growth and average growth seems to be almost negligible. If anything, we taper off our growth towards the set analogy so we are probably the contra to the rest of the system in that respect.

So, that's why the first question that how do you read the system like...?

I don't want to comment on what might happen at the system. See, I think we all recognize that there is some amount of cushioning in the quarterly year-end sort of -- quarterly and year-end numbers which tend to have a little bit of variation because of that. But all I'm saying is that through most of the year I guess, the industry saw growth rates which were about 15%, right on average; we saw little lower, we saw little higher.

Right.

And if I look at the 15% or 16% average, then clearly we have grown probably 6% odd or faster or something 6% and lose change faster. But you're right, towards the year-end there was a sudden spike and the system picked up to 17.5% while we still remained at that 22.7%. So I'm talking about the year-on-year growth rate that the industry does and outpacing that by 2 percentage points. I'll tell you the exact reverse happened last year as well towards the year end, again there was a huge spike in the industry growth rate so outpacing the industry was only 3%, 4%, although our growth rate was consistent through the year. So we are obviously keen on outpacing the system on a more continued basis so we are not looking at a point of time or just a loan growth in itself. Since we are looking at that loan growth translating into an NII, we're looking at average loan growth through the year, which is what we try and maintain. So, that would come to a certain figure that we would try and achieve.

Sure. And just one last question. Obviously under Basel II disclosures, you will be disclosing your movements of NPA in a while. Can you disclose it on the call for the full year?

Yes. So for the full year, the opening -- you just want -- what numbers do you want? The --

Say the whole thing -- I mean the opening -- opening obviously we have, additions and then recovery upgrades and write offs.

Okay. So the numbers are the movement of NPAs gross is the table. The opening balance for this year were INR1,999 crores. The additions during the year are INR1,859 crores; reductions during the year are INR1,524 crores; upgradation, INR165 crores; recoveries, INR206 crores; write offs, INR1,151 crores; closing balance, INR2,334 crores.

Sure. That's it from my side. Thank you so much.

Thank you, sir. Mr. Manish Karwa. Over to you sir.

Yes. Hi, Paresh.

Hi, Manish.

Paresh, just on your other income front, the last item which is like a miscellaneous income, you mentioned you -- does the recovery form a very big portion of that?

I'd say the recovery component is -- the recovery element of the -- no, so you're asking that -- we have given the breakup of that in terms of the recovery. So what is your question?

No, no. You had that other miscellaneous income of INR154 crores, does it -- all of it, is it recoveries or how much of it is recoveries?

Yes. The INR151 crores out of INR154 crores is recoveries.

Okay. And what is the nature of these recoveries, these are from retail, corporate --

Most of them are retail. See in retail we -- based on the days past due, we make provision and we write off, right? So in the write-off pool, so whatever is the recovery from our customer or from a retail loan rather that has been written off is the recoveries.

And secondly, on your staff cost on a sequential basis, we have not seen any big growth and even on a YoY basis, the staff cost number this time around has been pretty muted. Anything to read into this?

No. Obviously, we've -- the increase in staff cost has been in line with what has been happening in the industry, which has been a little muted as compared to some of the previous years. But in terms of our employee strength, there was an increase in employee strength from -- well, including the total number which was 66,000 last year is now 69,000. So, the rate of growth in staffing as well has probably come off from what was there earlier, but it's still at 69,000.

And lastly, the change that you have done in terms of the commission that you have paid, can you share the exact amount which would have reduced from your net -- or added to your net interest income and reduced from your -- and also added to your operating expenses?

Sure. Well, I don't have the amount, but I have the reclassified ratios, which is right before and after the change. But essentially as I said, it makes a difference of about 20 basis points on NIIM and roughly 1% in terms of therefore the cost-to-income ratio.

Okay. And this will now continue for every subsequent quarters?

Yes, that's right. Although I must say that one of the reasons why, the classification of acquisition cost as a yield adjustment is a requirement under IFRS as well. So we've been doing something which as I said there was no requirement under Indian GAAP or there was no standard or no particular policy laid down in Indian GAAP, but we were doing this in line with what is US GAAP and what would be required under IFRS. Of course, the only difference in India is that the acquisition costs under IFRS and under US GAAP also are typically has to be amortized, while in India, we write this whole thing off in the year of incurring itself. So the moment we acquire a loan, the entire commission that we pay, we -- you charge it off to the P&L in the year itself. So the answer to your question is -- would we continue this way? Yes, we would continue this way, except that as and when we move to IFRS, we may all have to and the entire banking system might again have to move to something like that, but that's as and when it happens.

Okay. And in this context, is there any seasonality to this number? Is it the case that fourth quarter's numbers are pretty high because you actually disburse a lot more loans in the fourth quarter on the retail side?

No. There is no seasonality to it and the timing of this change has been necessitated by the fact that we've been in dialogue with the RBI on this front and we've got a letter sometime in early March saying that this is what they would like us to do.

And just to re-clarify on this thing, in the March quarter, you've done it for the whole of the year, right? Or is it only pertaining to that quarter only?

The quarterly results are in respect of only that quarter and we have restated the comparable figures for comparison. So it's not that the impact of all the quarters has been redone in this quarter. So whatever was the acquisition cost for this quarter has been put up, but we haven't therefore taken the acquisition cost for the entire year and done it in this quarter.

Okay.

So these are otherwise completely comparable figures for this quarter itself and likewise, we have reclassified the numbers for the previous quarter and for the previous full year just for ease of comparison.

Okay.

(inaudible).

So if you look at, for instance, the December number that we have now stated and they are what was published earlier, they would again be different to the extent that the December numbers have also been reclassified in December for the December quarter. You understood?

No, I just checked the -- in the boxes that you've given out, the numbers aren't the similar to the number that you've given out earlier?

No. The numbers for the previous quarters and the numbers for the previous year have been re-categorized to reflect the new categorization in those respective years and not through this year -- this quarter's P&L.

Okay. Okay. And the change that you do is that you would -- earlier you used to deduct this commission from your interest on loans and now you will add it up to your expenses?

Yes, acquisition costs were a yield adjustment.

Okay.

And therefore, they would be reduced from the yield that you earn on that loan. So the cost of acquiring that loan has to be reduced or was being reduced from the interest earned on that loan. That is the requirement, for instance, under US GAAP and as I said going forward would be as and when IFRS comes in.

Sure.

So it was coming there as a reduction in the interest earned. Now, you are going to keep that interest earned at whatever is the actual coupon of the interest being earned on the asset and the amount that was being paid, the cost of acquisition, would come into the operating expense line.

Okay. And were there any loan sell-downs during the quarter?

There were some loan sell-downs in the quarter, about --

INR2,000 crores.

About INR2,000 crores.

Okay, thank you.

Jaiprakash Toshniwal, IndiaFirst Life Insurance Company.

Hello.

Hi.

(inaudible).

I'm sorry. I can't hear the [traffic] well.

Mr. Toshniwal? You can speak now.

Hello?

Yes, hi.

Yes, hi. Good evening, sir. Sorry for this thing. Sir, how many cities you cover for this year, at this financial year-end?

At this financial year-end, we cover 1,845.

Last year, we had around 1,400. So the 400 cities which is an increase in this financial year, can you explain us what kind of branches network would be there in this 400 incremental returns?

In each of these new cities, we would have had just one branch each.

Okay.

And then, the -- as I said, if there are 518 branches that we added during the year and we've added about 400-odd new cities, the remaining 100-odd branches would have been added in some of the existing locations.

Okay. And where the cities coverage will go up? I mean it will go up to 2,200 or how is this thing going to go up in the next two years?

See, it's tough to say. As I said, this -- the 193 that we've added on, for instance, are the fact that we already have some branch in a rural location and we might find that 15, 20 or 10, 15 kilometers or 15, 20 kilometers away from that, there is an opportunity for us to have another small branch, which further increases our reach into a deeper rural geography or which is an unbanked area. They would be therefore then for us, we would be interested in having a branch there and which, therefore, further extends our reach into those markets.

So this is, therefore, a dual strategy, one of actually going into rural markets or semi-urban markets where there is a potential and then adding a few more locations, almost like a hub-and-spoke sort of an expansion, which would further increase the catchment area for some of our rural branches. So, clearly, most of these -- therefore, it's fair to say that if we add a certain number of branches, a good 75%, 80% or even maybe 85% of the branches that we add would be in new towns or new cities or new rural locations.

Fair enough. But, lastly, in the current environment, do you have any comment on your gold loan books? Or how do you see it going ahead?

Well, the gold loan product itself is something that we still believe has potential. It's still a rather small product for us, and therefore, on that base, we still see an opportunity to grow that. It's a product that does have demand across most of our locations, but certainly, even more so in the rural and semi-urban locations.

Obviously, the issue is, are we -- do we have the right credit policies, do we have the right processes, and I think that is borne out by the fact that even through what has happened in the last few weeks, while there would have been cases where we would have asked for top-up of collateral or payment and so on, we've not had situations where we've had to do a large amounts of sale or we've had any sort of financial losses at all.

And I think part of that has got to do with whatever LTV that we specify and we specify this separately for customers who are internal customers, who have other relationships with the Bank and who have a banking history with us and slightly higher LTVs for the open market.

We also -- even when the markets were running up, our gold prices were running up, we were pegging the prices of gold so that there was some cushion that was being built in vis-a-vis the market price, so that we were not exposed to the final few percentage points of pricing risk.

Some of the other policies like the fact that we collect interest upfront or we collect it on a monthly basis rather than rear ended, again, means that there is no natural buildup in principal or natural buildup in loan outstanding, which can again erode the loan-to-value ratio. So, there are various checks and balances and policy inputs that go into the product and we do believe that with the policy that we have and maybe there is some tweaking required making those changes if required, but we still believe that there is still scope for us to grow this book in a healthy manner. And a fair portion of this would also, depending on the profile of the customer, qualify for [private] sector. So, it is a product, which will grow.

Okay.

It is still only a couple of percent of our retail -- of our total loan book and about 3%, 4% of the -- or 4% of the retail loan book.

True, true. Fair enough, sir. Thank you and good luck.

Thanks.

Next question comes from [Farakh]. Over to you, sir.

Hello.

Yes, hi.

Yes, my most of the questions are answered. Thank you.

Oh, thanks.

Thank you. Next on line, we have [Mitesh]. Over to you, sir.

Most of my queries have been answered. Thank you.

Thank you.

Thank you, sir. Next question comes from [Jyoti Katari]. Over to you.

Yes. Just to put it simply, this reclassification that will have a prospective impact and not retrospective, am I right?

Retrospective means that we have just -- we have reclassified those earlier numbers for the sake of comparison, but there is no -- see, there is no impact on profit/loss account or anything of that sort, right, because the bottom line remains the same. It's a question of a number going in a particular line or the other, right. So, when we -- in our published results, all the previous-year figures will be reclassed as per the new classification. There is no difference in the profit line or any of the balance sheet figures.

Yes. I absolutely got that. See, for this quarter, you said there is an impact on the margins that's closer to around 20 bps. So do you change your guidance on the NIMs? I think the broad outlook remains 3.9% to 4.2%. Any change in that post this reclassification? Any change in that bracket?

Fair. No, I think that's fair, because I think the -- if you translate the earlier range that we have achieved, and again, I would reiterate that it's not really a guidance, but yes, it's a range that we believe we've been in for the longest time. Then, the equivalent of the 3.9% to 4.2% would be something like a 4.1% to 4.5%, okay. So it's just that the sort of new equivalent of that in terms of just achieving the same core NIM, because of the way it would get classified would come to that number. So the numbers -- the range to that extent would get restated.

Okay. So, if you can just give us some more guidance on this band of 4.1% to 4.5%. Will you -- will it be possible for you to achieve the higher-end or the lower-end for the next financial year, although we understand you don't give any guidance, but a broad outlook?

I think if we look at this last financial year and you look at each of the quarters, right, we've actually seen within that range a movement of almost 20 basis points in each direction. So, I think realistically, it will be impossible for us to try and even speculate on whether margins will remain at the upper end or in the middle or in the lower end of that range. If you look at the seasonal sort of impact every year, you will find that the last quarter of every year does see a slightly higher NIM than the rest of the year, that's a -- I mean you look at every March quarter does see a slightly higher NIM.

Having said that, if you look at within the year, we've seen movements -- if you go back to the earlier quarter of this year, we were at 4.1%, 4.2%, 4.1%, and then if on an earlier basis this would have been a 4.3% quarter. So, I think it's fair to say that within that range, you would see or you could see movements in both directions. The factors that are influencing them are what is the average CASA during that quarter, what is the mix of retail versus corporate loans, and within retail loans what is the composition of that retail portfolio, whether there is any regulatory change in reserve requirements which does give or pull back some amount of NIM impact, and then whether there is any one-off in a particular quarter which could again make a difference of a few basis points like some tax refund or an interest on tax refund or some other one-off dividend income or something like that which can sometimes make a difference of a few basis points in any particular quarter. But all of this can cause movements in both directions, ultimately within that range that I spoke about which was earlier 3.9% to maybe 4.3% and would probably now be 4.1% to 4.5%.

Okay. And one last thing on the asset quality side, more specifically on the CV side, although if you look at the fourth quarter numbers, the numbers are being negative, but despite that, somehow, that has not been trickled down in your asset quality, it's behaving quite well. Where do we see the variance coming in? I mean, on the actual, sales numbers are down, but the asset quality for you is behaving well.

Well, so no, you are asking on a general basis or a specific product?

More specifically on the auto loans and CV side?

On the auto loans? Auto and CV, okay. No, so, on the auto side, our portfolio actually has been more or less stable even in the last few quarters, so even -- not just in this last quarter, but even in the previous couple of quarters, we've in fact seen virtually no variation. I mean, between the last three, four quarters, it's been -- it's a second decimal sort of change in NPLs in -- over the last five quarters. So it's been extremely stable in terms of asset quality.

As far as CV is concerned, from where we were at the beginning of last year, there has clearly been an increase during the year and this happened a little more starting in the second half of the financial year. So, I think post the diesel price hike that happened around September and whatever else happened in the economy in terms of the slowdown in industrial growth and therefore what happened on freight rates and the costs going up, clearly, the December quarter was -- I mean, we started seeing delinquencies in the September quarter translated to NPLs more visible in the December quarter and they've remained at that level in this quarter.

So you would have had new NPL formation as well, but not at a rate which is higher; in fact, at a rate which is marginally lower than the previous quarter. So I wouldn't say that things have normalized or things have got much better, it's just that they haven't got any worse and they have been stable to marginally -- very marginally better than what they were in the sequential previous quarter.

Again, as I said, this is relating to commercial vehicles. The problems do not seem to have abated in the -- even to the same extent in the construction equipment piece. So, I will just say that this product line still is seeing higher delinquencies and higher losses than what we saw a year back, but there is no continued uptrend in the losses. I guess, the more favorable sort of hope or expectation would be that if things start looking up in terms of industrial growth picking up or some of the pockets, which have been impacted by, let's say, the mining bans and so on get addressed, then, the commercial vehicle related delinquencies, which are for the operators, who are operating in those markets could start seeing some clawback. Also, a lot of our growth during the last year or two has been in the LCV segment in the semi-urban and partly rural markets, where we do have a slightly higher appetite for risk, because these are customers who qualify for a priority sector and so on. So, to that extent, there is an intrinsic, slightly higher risk inherent in that portfolio which will continue.

Just a breakup, what's the breakup of your LCV and MHCV and CV in your CV book?

I don't have that breakup, but we do have a presence in all the three segments. We do operate in the medium and large truck operator segment. We do operate in the mid-size three to five segment and we operate in the first-time user segments as well.

Okay, sure. I'm done, thanks.

Thanks.

Shall we go for the next question?

Yes, please.

Laxmi Ahuja.

Yes. Thanks for taking my question. Could I get the breakup of CTG and CV portfolio? Could I get the breakup between these two, because it's given one number?

Yes. It's about 70% of that number is commercial vehicles and about 30% is construction equipment.

And within the CV portfolio, could we get the proportion of the used CV?

That's very small, it's single digit proportion.

Okay. Another question was on the restructured book, outstanding restructured book has come down as and the absolute number, has there been any reclassification over here?

There has been actually two, three things. One, there has been actually some loans where the loan outstanding has come down. There have been some cases where the restructuring has failed and it has become a non-performing asset.

Okay.

And there have been -- and there has been --

(inaudible).

Yes, these are the two things, which have actually happened.

Nothing of that sort that if the account has been performing for two years and they have moved out of the restructured book and have been --

Yes, there is one account in that category also, yes.

Okay. Another question was on the wholesale loan book. This has come down quite substantially on the sequential basis as a 9% down, has there any repayments of a shorter-tenure loans or something of that sort?

We do have some repayments that -- since we do a lot of fair amount of short-term stuff, then, there are short-term loans. If you remember in the last quarter of the year, again, deposit rates had spiked a little and we, typically, during that period, don't find it worthwhile putting on short-term loans to the same extent. So there would have been some maturity that we'd have allowed to run off.

Okay.

Because the whole idea is that if you do have short-term loans in the corporate side, you do have some flexibility in terms of managing your growth rates.

Okay. Fine, that was it from my side. Thanks.

Welcome.

Thank you very much.

Just at this point, since we've finished a little over an hour, do we -- do I -- roughly, how many more questions are there in queue?

There are more than 10, sir.

Okay, then, let's take a few more and hopefully, there's an overlap and some of them drop off, but we provided -- I have answered them, of course, but okay, let's try and take the remaining ones.

Manish Ostwal, KR Choksey.

Yes, Manish here.

Hi, Manish.

Yes, sir. My question on the overall retail loan portfolio behavior over the period of time, could you share the -- what is the peak and bottom in terms of credit losses and where we are in terms of budgeted versus actual and where do you see the normalization will happen? Some of the pockets already -- I mean the CV and the construction equipment business demonstrates some normalization happening there. So could you share some insight on those things?

Well, if I was to look at the secured piece and unsecured piece, first breaking that up, across the unsecured loan portfolio between, for instance, the personal loans and the credit cards, we have seen the loan growth -- the NPL and delinquencies in the last year have been extremely stable and these are levels, which are still much lower than what we believe is the long-term normalized credit loss for the unsecured products and this is what -- if I go back four, five years and we look at the averages that we were hitting at that point of time, then, certainly in the last two years, both for March 2012 and March 2013, the losses were a little lower than what the historical or the expected losses have been and the trend in that at least at this point of time seems to be fairly stable.

As far as the other products on the secured side are concerned, other than CV, which we have already discussed at great length, so I won't go into that. But I mentioned on auto, we have seen stable numbers in business banking, which is the SME piece and loans against property and those kind of products. Again, we've seen some delinquency formation, but not anything which has been very -- there will be no trend to it and it's still lower than what the expected losses have been. So actually, [on this hand, the CPG piece], which is why I guess is being the subject of focus, most of the other retail portfolios have remained fairly stable, and that has been the case now for I guess about seven or eight quarters.

Okay. Secondly, sir, I have a question on the consolidated annual numbers. We have a subsidy, [majorly] the HDFC Securities, I have reduced our parent standalone number from this subsidiary for comparison of what is the contribution of subsidiary. The net profit growth on a subsidiary side is 63.6%, and revenue operating income side 54.3%. The business dynamics of the subsidiary are very weak. So could you throw some highlight on the operational highlight of the subsidiary and is there any one-off included in the subsidiary earnings?

No. First of all, there is no one-off in any of the subsidiary earnings.

Okay.

And I -- as far as the businesses that we're in, the larger portion of the subsidiary -- and we have two subsidiaries, right, one is HDB Finance and the other is HDFC Securities. Both the businesses have grown and have shown an increase in profit. As far as HDB Finance is concerned, the balance sheet --

INR8,000 crores.

Is now about INR8,000 crores and --

(inaudible) INR100 crores.

And the profit is about INR100 crores.

The -- in HDFC Securities, despite the tough environment in terms of broking, the business has grown -- has made a profit of about INR60 crores for the year and that has shown a growth over the previous year as well. So there is no -- I mean, from an operating performance, I might agree that the operating environment has been somewhat tough for some of these industries, but both the subsidiaries have grown in terms of top line and bottom line.

And sir, could you give me the fee and commission number for quarter three FY13?

Quarter three FY13 for fees and commissions?

Yes.

It was INR1,414 crores.

And lastly, just to check this accounting treatment, other income on a like-to-like basis from old reporting and new reporting.

Yes.

The total difference is INR183 crores. I'm comparing the quarter three number only.

Right.

Okay. And the provision number went up by INR98 crores. Hello?

Yes.

Sir, so balance is the income coming from the -- which part of adjustment, then? Because INR98 crores will come into the -- in the form of recovery from written-off accounts adding to the other income, right? So --

Yes.

So this other income balance part of increase in the other income represents what, sir?

So there are three new items. One is the other income goes up to the extent of the recoveries, which is what is one element of it.

Yes.

The fees and commission, the only other element which comes into fees and commissions is the subvention fees, which comes on a net basis -- that is, you receive subventions and there is -- this is net of what is -- or the entire subvention that we receive is there. So the other portion which is there other than the recovery would be the subventions received.

Okay.

And the number that we gave you earlier of INR1,413 crores, that's only fees and commission.

Okay.

If you want the total other income number, that is INR1,927 crores.

Yes, yes, I was comparing the reported number of quarter three old and the new, and the difference is INR129 crores and the provision difference was INR98 crores, so I was thinking what is the other elements. Okay. And the last point in a [notional] account, the point number six, you have written -- it is written that direct charge-off -- provision for direct charge-off, what is this direct charge-off? Could you explain?

The direct charge-offs are earlier part of this line, provisions line. So that number is now reported under the operating expenses. So there are two parts of the provisions. The recoveries which is the largest part --

Right.

Which is now classified under other income and the direct charge-offs part which is now classified under operating expenses.

Okay. Okay, thank you very much.

Nilanjan, BRICS Securities.

Hi. Thank you. If I look at the -- because of commission and the way we are reclassifying the commission, it looks like we have a 20 bps jump in the margin. So is it that -- and this is on interest-earning assets and now, loans will be roughly what 60% of interest-earning assets, let's say, so are we paying like 30, 35, 40 basis points as commission?

Well, depending on what the particular retail assets are which are originated during that quarter and if you look at, for instance, some of these products have a couple of percent origination commission, in some cases maybe 3%, 4%, so relating it to an overall book may be difficult to assume and what you are doing is you are charging off the entire portion on that in that particular quarter.

Right, right.

It's not really a yield adjustment. You're not -- if you amortize that, you would have got a function of what the yield adjustment is which would probably be much lower, but -- or in any case, it would really depend on what the loan book is related to that product.

Oh, I see. Okay, okay, okay.

Basically, what you are saying is even if I do a loan on 31st of March of a particular year --

You charge it off in that year.

So you've earned no interest during that quarter really but whatever you have paid, you'd have charged it off to the P&L, right. So it's not really relating to the same loan book for the loan origination.

Okay, okay, okay. That makes sense. And quickly, Paresh, I was -- this is something I think we have been asking you for quite some time. When we look at core operating profit, that is, we exclude the Treasury because that's how we do not look at HDFC Bank, let's say, for example. Now, I was looking at the annual disclosure because that's where all the adjustments are. So the core operating profit grew about 17.5% and we have a drop off -- the total credit cost has dropped by 11%. How do you reconcile these numbers? Your top line which is -- which defines your pricing and your fee, it is coming down and your credit cost is going [down]. So what has really changed in the last, let's say, three, four years? Is it that the pricing has depressed because of, number one, competition; and number two, because your underlying credit costs are lower and which ultimately gets reflected in your pricing? I'm trying to reconcile these two equations.

I'm not quite sure whether I've understood the relationship you're asking about. I think the thing is simple enough. The -- from [at least the way we look at it], I'm not sure whether I'm putting this across.

Yes.

If you look at the revenue part of it, right, and you keep aside the trading part, which you said is you're not looking at that, clearly, the major components are the net interest income, and the fees and commissions.

Correct.

Right. The interest income will be ultimately a function of the rate at which the overall asset growth has been achieved, right.

Yes, absolutely.

The balance sheet growth and in this case, let's say, the loan growth which has been roughly in the low 20s in the last couple of years. Then, the question is if the margins are roughly stable, obviously, that line by definition will therefore grow roughly in line with the asset growth.

True.

The fees and commissions line, which has [seen] quarterly variations has also in certainly the last year or two grown at somewhere in the [18% or 19% to 21%] range.

Correct, correct.

So that has been the revenue growth and I think that again will be and used to be higher at a time when the loan growth are in the mid-to-high 20s because the banking system loan growth was maybe in the low 20s and we would then grow perhaps in the mid-20s. So, the absolute growth in NII and the rate of growth in NII would be a function of the balance sheet growth provided, of course, margins remains range bound as they have been in the past.

Paresh, I was reading it in a different context altogether. Let's say, our -- because of CIBIL or whatever that there are no job losses, for example.

Right.

We are seeing our credit costs or the underlying credit costs being substantially lower than probably the budgeted ones.

That is true.

So would you believe, let's say, we enter into a distress situation in the economy.

Right.

Where we see credit card cost not falling, actually going up by 11%.

Right.

Would you expect your core operating profit to not grow at 18%, but at 28%, is what I'm trying to reconcile?

Well, I would say that if that deterioration in the environmental asset quality resulted in people pricing for a higher amount of risk in the market, then, obviously, we would get our share of the higher yield or the higher pricing of risk. To the extent -- and that would therefore give a boost to the dip that happens and the only sort of net advantage to us is ultimately that the market prices in a certain level of risk and if we can achieve it better than market actual loss, where the actual loss is lower than the expected loss and if we believe that the expected loss is what the market prices in, then there could be this, shall I say, disconnect between what is priced in up or lower.

But if you're saying that, yes, there is an increase in deterioration in the asset quality for the banking system and therefore, individual players immediately react and start pricing in that higher risk for whether it's a car loan or a CV loan or a credit card, then, to some extent what you are saying could happen. I don't think we've necessarily seen that happening in the past. But if it's a theoretical question, could it or would that be the case? Yes, if there is a high yield, naturally, everybody who is earning that -- that would, of course, happen on incremental loans. It wouldn't happen on the existing book, because most of these are fixed-rate loans.

Okay. I was driving to this -- it's good that you answered the way you did, because in the past, our core revenue line used to be quite higher than at current levels.

Yes.

And our credit cost also used to be higher. So the reconciliation I am asking you is, is it the underlying nature of credit quality has improved so much that the pricing has come down is what I'm trying to reconcile.

Well, in our experience -- I'm not saying whether -- it's tough to say whether the lower credit experience or the low credit loss is a permanent recalibration of expected losses.

Okay.

But, certainly, our experience in terms of actual losses has been lower-than-expected losses. Some of that gap has been filled in by the countercyclical provisions that we have been making.

Absolutely.

Over the last couple of quarters as the -- or certainly, in the December quarter and to a lesser extent this quarter, as the level of NPL was slightly higher, our low if you remember was 0.9, right; today, it's still around 1%.

Correct.

To the extent therefore that the specific provisions have come up slightly from lows, the floating provisions are slightly lower, although they are still there and during this year, we have still probably made about INR400 crores of floating provisions. But beyond that, I can't say that there is a very direct sort of linkage. There are several moving parts, but it will be fair to say that, yes, overall, as compared to the historical expected losses, the actual experience has been slightly lower, some of which could be attributed to perhaps what you refer to whether it's impact of the credit bureaus or whether it's impact of better fraud control and so on, it could also be reflective of our focus on internal customers, it could be reflective of our improvements in our credit standards or our credit buying processes. So, there is a variety of factor, or it just could be that the -- there have not been job losses or there have been continued wage inflation, which has enabled our customers to meet their obligations. It could be environmental, it could be some improvements that we have done.

Sure, sure. And quickly, and just couple of data points, I missed the early part of -- if you have disclosed. For the full year, what is the provision for -- specific provision, just a specific provision and standard provision and floating?

We haven't -- I haven't given it earlier when you were not in the call, but for the full year, you are saying, is it?

Yes. Or if you can give me for this quarter that would be okay.

For this quarter, there is a INR50 crore floating provision.

Correct. And what is the standard and --

There was no standard, because the total loan book as you can see has not --

Has gone down.

Yes.

Okay. And what is the recovery, if you can restate for the full year, please, for this year as well as last year, recoveries from written-off assets?

The recovery for the last year was -- full year was INR529 crores, and this year is 500 and --

It will be some small (inaudible).

Okay, this is about 500 and --

(inaudible).

Because it includes one or some small other miscellaneous piece also, the exact credit recovery are INR500 crores for both years, but including some miscellaneous one year, it's INR529 crores, which was last year and now it's INR514 crores.

INR514 crores, okay. Okay. And last question, the number of mini, micro branches that we had the period ending for, let's say, 2012 and 2013?

Well, we've started adding these only this year. I think last year, we had one or two pilots. So this year, the 123 is.

Is the final, okay. Okay.

Yes.

Okay. Thank you very much, Paresh.

Yes. Thank you.

Thank you, sir. Next on line, we have Saikiran. You may go ahead, please.

Yes. Just a follow-up on the recovery from written-off assets, what is the thought process of regulator, why there is a change from the provision charges to other income? And then, just want to understand that, but this will change your write-off policy going forward. Thank you.

No, it would not change any of our policies going forward. I can only -- I don't know what the sort of rationale or the reason would be because -- all I know is that I think most of the other banks, especially the public sector banks apparently account for it this way and therefore, I presume in the interest of comparability and consistency, we might have been required to state it this way.

Okay. And just --

As I said, what we were doing was what is done internationally and is consistent with what we report in US GAAP as well. So since there was no specific guideline, we were doing it in a particular way, which of course we have done consistently ever since the beginning. So this is not something which we change along the way. But yes, I mean, we were asked to do this, because perhaps it's what most other banks do or at least some of the other larger PSU banks might be doing that.

Just as a follow-up, sir, what's the current write-off policy and at what circumstances do you write off specifically on the retail side?

So, on the retail side, it's a function of the number of days that the loan is past due. So just as that 90 days, it becomes an NPA depending on the product, whether it is secured, unsecured, whether it's secured by mortgage or other products, we have a write-off policy which is a certain number of days past due. So it's purely a function of the delinquency string as far as retail loans are concerned. On the corporate side, of course, it's a name-by-name decision on when to write-off a particular loan.

Understood. And sir, just as a follow-up, last question, you answered that INR500 crores is recovery. That is recovery from written-off assets, that's what's you are mentioning of for FY12 and FY13?

That's right.

Thanks. That's it from us.

Good.

Thank you very much.

Do we still have a number of questions, because it's been an hour-and-a-half, I thought we -- can we just restrict all the remaining ones then to one question each if that's fine with everybody?

Sir, shall we go for the question next?

Yes, but my request is that for all the remaining calls, if you can just stick to one question each, please.

Sure, sir. Next on line, we have Rakesh Kumar, over to you, sir.

Hi.

Hi, this is Rakesh here. Just I had one question regarding the balance sheet, the change from the -- this quarter. This quarter we have taken INR1,500 crore of borrowings incrementally and we have increased the cash balance which is not the CRR requirement and also the advances book has actually come down. So what was like this borrowing for during this quarter, what we have taken up INR1,500 crores?

I am so happy that you asked this question, because my colleagues here were desperate for me to give that piece of information. This is -- we raised early in the quarter a $500 million senior debt through an MTN program for -- this is foreign currency borrowing for funding our growth in the overseas loan book. So, this is our first borrowing under the MTN program and I think the reason why we're looking to share that is that this, of course, the bond issuance did extremely well in terms of the demand and the oversubscription and so on, but what is important is that the coupon was the lowest ever for any bond issue by any bank in India for a comparable tenure, of course. And the pricing, which was achieved on that was the tightest pricing that was ever -- that has been achieved for any bank issuance. And it's essentially not just at the time of the issuance, but even subsequently is price tighter than any other bank in the country. This is of course any other commercial bank in the country. So, that's the sort of borrowing. Nothing to do with trying to fund a local currency for -- it's purely to fund those balance in our two overseas branches.

Okay, thanks.

You're welcome.

Thank you, sir. Next on line, we have Anish. You may go ahead, please.

Hi, Paresh, this is Anish Tawakley here.

Hi.

My question is on the branch network. So you've expanded about 440 or so -- into 440 or so cities, of which about 193 are these micro outlets, right?

Yes.

So that gives us about 250 non-micro new cities.

True.

Right. So, if I look at the profile of these 250 cities, how many more such cities would exist in India, which would then define your -- I guess, your universe and how rapidly do you want to grow there and what implications does that have for cost growth?

Well, I would say of course whether one calls these cities, towns, townships, whatever --

Yes, yes.

I do believe that if we were to look at adding even 100, 150 of such towns every year, one could almost do this for the next, [it's not in perpetually] for several years, because the threshold of what makes this an acceptable or an attractive-enough location, there are several hundred more of such locations that we could expand into. Whether we would want to in each of the geographies or not is a different matter, because you'll do these -- you might want to concentrate in certain pocket, certain region, and certain states from time-to-time. As a time you want to disperse these too much. So there has to be some logic too the way we go about it, but I think --

Really, my question was --

Yes, sorry.

That's exactly my question. I mean what's determining the pace at which like why is it 250, why not 500, or why will it be 100 next year, what's determining that pace if you could?

See, the point is, it obviously has to be something that we can physically manage in terms of number of such locations that we can open. It's also a question of validating our hypothesis in terms of what our experience is before we try and open the next 50 or the next 100 and so on. So if I really want to look at the cost of some of these locations or some of these branches rather in these locations, if I look at a metro branch at a 100, these would probably be in some cases two-thirds, in some cases half, in terms of both the cost and the potential. So I think what we are trying to do is balance the opportunity in these markets with the need to manage our cost-to-income, because there is only X amount of cost that we can digest, right? Because obviously, there is an operating leverage that's kicking in on existing branches.

We are using that as an opportunity to reinvest and expand our network. There are also some regulatory requirements where we need to be in unbanked areas and so there is a combination of what we want to do in terms of extending the catchment area of existing branches and getting into other unbanked areas.

So I think from our point of view, we do see this as a strong opportunity, which we will continue to build on. But, clearly, the intention is to do this without allowing the cost-to-income ratio to deteriorate from here; if anything, we would like the operating leverage to give some benefits where even after investment, we see some improvements that are possible.

So it's not that we've decided that we want to open X number of branches and then we space this out from year-to-year depending on what we can afford, but it's a question of also testing something out, then, rolling out these branches, seeing if we are roughly on track and if we feel that, no, there is -- it's not giving us a traction, we could take call of consolidating a certain amount of growth or we could continue to roll out.

And consequently, how should we think about cost next year, Paresh?

I think, again, not necessarily in the next year or for any particular year, but I think it will be fair to believe that in the next few years, we would typically try and target some improvement in the cost-to-income ratio. So while we would continue to invest, even if we were to add a reasonable number of branches, if many more of these branches are slightly smaller and the impact on the cost-to-income is slightly lesser in terms of the drag of the newer branches, then, we do see some scope for our being able to try and improve the cost-to-income ratio from where it is. It won't happen -- suddenly, it will happen, I guess, in baby steps over a period of time, over a few years, but I think that is certainly something that -- would be something that we could aspire to.

Okay, thanks.

Thanks.

Next on line, we have [Hiren] from Mumbai. Over to you, sir.

I think I'll spare you. Thanks a lot.

Appreciate you, Hiren. I'm sure everybody else does as well.

Mahesh, Kotak Securities.

Good afternoon, sir. Just two -- one clarification. How do you recognize depreciation on investments in the current format? Do you knock it off against the sale of investments or do you keep it as a part of provisions? And the second question, if you can give a clarity on the lower tax rate for the quarter. Thanks.

The unrealized mark-to-market gain or loss is reflected under other income and in case there is a diminution, [hence a permanent] diminution certainly for nonperforming, then, that is shown under the provisions and contingencies.

You got that?

The unrealized, you -- the unrealized mark-to-market gains.

Gain or loss. Gain meaning, if you have first taken a mark-to-market hit and then, you -- it's regained up to the original cost, right. So it's a write back of what was an MTM provision. That has taken the other income line and as far as the diminution in value of investment, which is more to do with credit -- I guess NPIs, if you might, that has taken the provision line.

Okay.

As far as the tax is concerned, I think with the higher tax rate in this budget, the deferred tax asset has gone up and therefore there is a tax credit, which is coming.

Sorry, this is pertaining to this year, FY'14.

FY'14.

So you get a tax credit on the previous year?

Yes.

Deferred tax assets gets revalued.

Okay, okay. Okay, thanks.

Yes.

Alpesh Mehta.

Hi. Hi, Paresh. Thanks.

Hi, [how are you]?

And congrats for the good set of numbers.

Thank you.

So what's our employee base as of FY13?

69,065.

69,065. Okay. And one more thing about this reclassification, the subvention that you receive, it will be a part of other income and interest income has been grossed up and the commissions that you paid to your sales guys would be a part of operating expenses?

(inaudible).

(inaudible) the agents, the sales agents and the dealers and yes, that is part of operating expense.

Yes, sure. Thanks. Thanks for the time.

Vibha Batra, ICRA Limited.

Yes, see, I have a question on gold loans. Have you auctioned any gold loans? And second is that, what is the typical lag when you send a notice for auctioning and the auctioning of gold?

We've done some very small number of literally handful of sales. So there has not been any large auction or anything of that sort so far.

Okay. And typically, what is the lag when you send the auctioning notice and when you decide to auction and the auctioning?

I sort of don't have those details with me, but there is a certain process that is followed where we trigger a notice at a certain LTV and then there may be a -- but I don't have that operational details right now.

Okay, okay. And what percentage of your portfolio would be above 80% LTV on the gold loan book?

We haven't been sort of disclosing components of -- this is, as you can imagine, an extremely small portfolio for us.

Yes.

So I think further stripping out what maybe the LTV at 80% or 85% or 90%, I think we don't think that is material. And yes, I don't have those numbers in any case to share with you.

Okay, thank you.

You're welcome.

[Piyush], Sundaram Mutual Fund.

Hi, sir. My query was on the LTVs of the CV portfolio, a lot of [detailed checks]. So this is that the LTVs have actually been going up on the MHCV and CV front. Could you share what kind of LTVs would we be running on our CV portfolio, more specifically on the MHCV and LCV portfolios and has that gone up on a 12-month basis?

I do not have the number, but given what's been happening in that particular segment, I don't think we would have participated in an increase in LTVs in that particular segment. But I'm sure this is also a function of customers. I don't think there could be something which is uniform across all our customer base in that segment as well.

Okay. And one last question, sir, on your write-offs, which is now being classified in other expenses, what would have been the overall quantum that you would have -- for the full year, which would be in other expenses?

[In other income].

No, sir, I'm talking about the write-offs not the --

Okay, the write-offs which was in other expenses.

Yes.

Is the question answered, sir?

No, just a second.

Sure.

[For the year, it is INR85 crores].

INR85 crores. Okay, thanks a lot, sir.

Between INR80 crores and INR85 crores, I think.

Yes, sure. Thanks, sir. That's it.

Next on line, we have [Shantanu Bhowmik]. Over to you, sir. Mr. Bhowmik?

Hi, one question.

Yes.

Do you foresee any requirement for capital either for Basel III or otherwise anytime?

Right now, we are at 11% Tier 1. So from an immediate requirement point of view, we seem to be okay.

I understand that, but any sort of plans one year, two years, any sort of --

One year, two years, I think I would have to be (inaudible) there is certainly no plan right now on the cards.

Okay. Fair enough.

Okay. I think are we through with all the questions?

Sir, we have one question last.

Okay, (inaudible).

Last question from [Sachin Upadhyay].

Hi, Paresh. Thanks for taking the question. Hi, one question.

Thanks for your patience for holding on to the last here.

(inaudible) is the best or last.

Okay, I guess so, yes.

Just actually one thought process that you mentioned that you would kind of look at corporate book expanding at much faster pace given the fact that retail is seeing some competition. One, what is the project loan as of now in terms of proportion and what is the comfort level that you would look at, at what yields which is one part of it, and what is the opportunity size right now that is available in the market?

I must say that we're not that we are saying the wholesale book is or the retail book is seeing higher competition, therefore, we want to grow the wholesale book. I just believe that relative to this year, there will be slightly higher level of opportunity on the project finance or the CapEx, the debt funding side next year -- I mean, this year rather as against last year, because clearly, last year, there was negligible amounts of incremental investment-related demand and this year, there will be some. That's point number one.

Point number two is that, relative to the last couple of years, we are better positioned to participate in that than what we used to be driven by the fact that we've now had a couple of years under our belt in terms of doing some of these loans or participating in some of these opportunities and the fact that we have built our debt distribution capability on the investment banking side as well, so we are participating, we are taking something on our books, holding on to something, distributing something.

In fact, despite last year being one of our -- effectively our first year in the debt capital market side, we ultimately were ranked fourth largest in terms of the rupee corporate bonds, so it's a function of what I see as what can provide the up-tick in terms of the -- if GDP growth has to bounce back, then, the fact that this part should grow and therefore, it should throw up opportunities and the fact that we are slightly better positioned to be able to tap into that opportunity.

In terms of the proportion, right now, these kinds of loans would probably today still be about 4%, 5% of the loan book. So it's still a relatively small component, whether this -- I'm not -- we are not targeting that as a proportion it must go to X or Y percentage, but as we do some of these larger number of such transactions, could that percentage grow up by a couple of percent, the answer is yes, because the base is small, but the rest of the loan book is also growing. So -- and it's not something that we're going to suddenly change in a year, right, because even if you start doing these transactions, disbursements take place over a couple of years and the rest of the loan book is also growing. So I would leave you with the fact that, yes, this is an opportunity that we do believe if properly handled, there are opportunities that are bankable and that we would have an appetite for. It might grow in proportion, but it's not going to suddenly change the composition of our loan book.

Okay. (inaudible). Thanks, thanks a lot.

Thank you so much.

Thank you, sir. There are no questions from participants.

Okay. Thank you, everyone, for all your questions and I hope we've been able to answer most of them. Once again, thanks to everyone for being on this call. Bye.

Thank you very much. That does conclude our conference for today. Thank you for participating on Reliance Conference Bridge. You may all disconnect now.